Entries for April 2011

The sweeping Dodd-Frank Act changes in the US for market participant classification, clearing, and margining are being closely watched and emulated internationally.  The dangers/opportunities between national regulations, adoption, and timelines can be significant.

In September of last year, the European Commission proposed a framework to regulate OTC derivatives, central clearing counterparties, and trade repositories.  In December, the Commission also published a consultation paper on the Markets in Financial Instruments Directive (MiFID) to "improve the regulation, functioning and transparency of the financial and commodity markets to address excessive commodity price volatility."  In a joint statement from EU Commissioner, Michel Barnier and CFTC Chairman, Gary Gensler, Barnier stated, "It's essential --across the board on all financial regulation--that the United States and Europe move in parallel and that we don't create new space for regulatory arbitrage."

It still remains to be seen how significant the differences will evolve, and which countries and companies will be most affected or take the most advantage (China stands out as a likely recipient of business fleeing costly or time-consuming regulations.)  Below is a table with some of the key similarities/differences.  Also of note is that some of the regulations at the bottom that are US-centric may be applied to US-listed companies or those operating in the US (e.g. Canada.)

 Description

US

 EU

 Clearing

 Mandatory for standardised OTC contracts (unless end-user exempted)

 X

 X

 End-User 
 Exemption

 Hedging for non-financial entities

 X

 X

 Mandatory
 Reporting

 Uncleared swaps to SDR (US) or trade repository (EU)

 All

 Specified
 Threshold

 Volker Rule

 Prohibiting bank proprietary trading

 X

 

 Swap Push Out

 Banks to establish separate trading entity ("too big to fail")

 X

 

 Timeline

 Deadlines for most major provisions to be published

9/2011

 12/2012

 Policy 
 Fragmentation

 Regulatory bodies that are responsible for enforcement

 Many
 Agencies

 Many
 Countries

 Payment
 reporting

 Reporting on payments to non-US governments (provinces and municipalities)

 X

 

 Compensation 
 Limits

 Executive compensation drawbacks

 X

 

 Safety 
 Regulations

 Companies operating mines in the US

 X

 

 Whistleblower
 Recovery

 Up to 30% >$1M in damages

 X

 

 Conflict
 Minerals

 Independent review of minerals being conflict free (e.g. Congo)

 X

 

Can you mark all derivatives and perform all hedge accounting requirements for testing, documentation and reporting with only a few clicks? Are you confident you meet all FAS 133, 157 (ASC 815/ASC 820) and IFRS 7 requirements? Are you worried you might fail an audit because of hidden spreadsheet errors?

Triple Point recently hosted a webinar on Hedge Accounting Management and Fair Value Disclosures and how you can streamline your compliance efforts, gain control of operational risk and avoid financial restatements and other regulatory pitfalls. In case you missed the live webinar, here is a link to download the webinar and view at your convenience.

In this webinar, Triple Point’s regulatory experts, Mike Zadoroznyj and Scott Holzman, discussed how Triple Point’s Treasury and Regulatory Management Suite is the only solution that supports all Commodity, FX and IR hedge accounting and fair value disclosure requirements on a single platform. Attendees discovered an easier way to meet strict hedge accounting requirements, how to optimize hedging strategies, and new features including: extended MTM regression functionality and support for commodity swaptions and inventory fair value hedges.

To learn how you can simplify reporting, eliminate risk, and ensure compliance, download the webinar below.



















“Thanks to the global financial meltdown, we now know what a "black swan" is,” writes Russ Banham in the April edition of CFO Magazine, “but do we know from which direction the next one will swim into view, and what to do when it does?” Black swan events are highly unpredictable, but it appears more and more companies are implementing ERM programs in hopes of being better prepared to identify and mitigate the impacts of the next one. What is causing this uptake? Is it really the fear of the next black swan event?

Possibly, but Banham shares 3 other converging trends that he thinks will propel ERM to a new level of acceptance and maturity.

Regulatory Pressure on Corporate Boards.  Corporate boards can no longer ignore risk management. The Dodd-Frank Act establishes new requirements for board risk oversight and reporting,” explains Banham. “Rating agencies, led by Standard & Poor's, now factor ERM criteria for financial and nonfinancial entities into the ratings process. The Committee of Sponsoring Organizations (COSO) rolled out COSO II (referred to by many as "COSO ERM") in 2004 to establish requirements for risk identification, management, and reporting. And the Securities and Exchange Commission has sharpened its stance on risk management.”

ERM Recognition as an overall Risk Management Best Practice. Historically, companies have struggled to implement ERM due to a lack of overall standards. A set of standards is now emerging. "If you can demonstrate that you have identified and analyzed risks according to a best-practice standard, you have an advantage over competitors that do not closely hew to the standard," explains Bill Ingram from Zurich Services.

New Technologies.  New risk management tools are making critical risk analytics including stress-testing and "what-if" scenarios easier to perform and report. "Things are never static, so you need business intelligence on risks that flows in real time to senior stakeholders to enhance their decision making," says Henry Ristuccia, the leader of Deloitte's governance and risk-management practice.

Check out the full CFO Magazine article “Disaster Averted?” to learn more about what is driving ERM acceptance and predictions on what’s next for ERM.  It is an excellent read.

Gartner recently published its 2011 Magic Quadrant for Energy Trading and Risk Management Platforms. 

Here are my take-aways from this year's report:

  • It's the 3rd straight year that Triple Point is positioned as a leader
  • The gap between the 2 top leaders (Triple Point and OpenLink) and the rest of the vendors is getting wider each year

It’s interesting to see the ETRM market evolve similar to other software markets where there are 2 lead vendors (such as SAP and Oracle in ERP) and a handful of other vendors that fill niches.

Triple Point has purchased the rights to the report; below is a link to view a complimentary version of the full 28-page report.

Report Link: Gartner 2011 Magic Quadrant for Energy Trading and Risk Management Platforms

 

Karur Vysya Bank (KVB), India's leading private sector bank, has licensed Triple Point's commodity management software to control precious metals price volatility in its newly established bullion business.

Founded in 1916, KVB operates more than 350 branches across India and reported revenue of $8 billion for the financial year ending March 2010. New to the precious metals market, KVB was seeking a comprehensive commodity management platform to effectively handle inventory, reconciliation, risk, and regulatory compliance. Triple Point's Commodity XL for Precious Metals™ provides KVB with advanced stock and inventory management, secure transaction processing, and a real-time view of risk across the enterprise.

More than 60% of all gold imported to India is transacted through Triple Point's precious metals software to manage complex wholesale bullion operations. Triple Point bullion customers include HDFC Bank, ICICI Bank, Standard Chartered Bank, Kotak Mahindra Bank, Diamond India, AXIS Bank Limited (formerly UTI), State Bank of India, Bank Muscat, Su-Raj Diamonds, and the Indian Bullion Market Association (IBMA).

"Triple Point's precious metals software is the leading market-proven solution for the treasury bullion business," said Mike Ravo, VP, industry solutions, Triple Point. "The system monitors client exposure and margins in real-time, integrates trading and logistics, and supports robust risk management and compliance. We welcome the opportunity to help KVB manage its new bullion business, as well as future growth."
Posted in: @Triple Point

Shipping lanes remain the great conduits of commerce. Like the great empires of old, today’s modern trading enterprises are built on naval strength and maritime capabilities, and 90 per cent of the world’s traded goods are transported by sea.

But although the majority of raw materials and finished goods reach their destination by sailing the seven seas, the reality of commercial shipping is much more constricted than the old cliché implies. It may well face fewer logistic challenges than transporting goods across huge land-masses, but getting cargo from one point to another is far from straightforward, and there are still plenty of constraints on where and how goods can be transported.

Oil products and minerals are the most transported commodities, and the location of these resources determines many of the shipping lanes for bulks. The importance of large manufacturing regions and consumption markets also give structure to the most common maritime routes. Then there are the physical constraints: coasts, winds, marine currents, depth, reefs, and ice all play their part in determining where ships can and can’t be sent – as of course do political boundaries. There is a reason that today’s supertankers plough the same waves as the great tea clippers of the 19th century.

However, many of the maritime routes that traverse the rest of the globe are only a few kilometers wide, and a limited number of strategic ports to serve these congested shipping lanes. Even ships on the popular trans-Atlantic and trans-Pacific routes, which have a far greater choice of routes and ports, still tend to congregate around tried and tested ‘Great Circle’ paths and the ports that serve them.

So a ship cannot simply turn up in a strategic port and expect to discharge one cargo, pick up another and sail off into the sunset. One of the most critical elements in managing the profitability of any voyage, therefore, is assessing port availability, and to include that information when calculating voyage distances, bunker fuel requirements, and the type of cargo to be carried. A ship sitting idle while waiting for a berth in one of the world’s shipping choke points will be missing its laycans, possibly destroying its cargo and definitely losing business.  It is effectively throwing money overboard.

Port availability is also a critical factor in determining the level of risk of any given voyage. This is not simply the financial exposure to freight rate volatility and counterparty credit risk – although again an idle ship will have deleterious effects on both – but also the personal risk of piracy. Pirates off the Somali coast and in the Gulf of Aden have already caused shippers either to pay exorbitant war risk insurance premiums, or to re-route and add delays and extra fuel costs to the journey. UNCTAD’s 2009 Review of Maritime Transport found that, based on 2007 data, re-routing 33 per cent of cargo from the Suez Canal to the Cape of Good Hope because of piracy concerns would cost ship owners an additional $7.5 billion per annum.

So charterers, ship owners and operators need accurate, up-to-date and comprehensive information on all the ports on their routes. And not just whether there is room for them. Shipping firms need quick identification of port positions – individually, by country and by zone. They need pilot information and the restrictions on draft, length overall (LOA) and beam to make sure the port can take a given vessel. They need latitude and longitude values and the UNLOC code as well as distance and routes to other ports. Even information about GMT offset and Daylight Savings Time is essential if journeys are to be optimized and delays minimized.

 

Continue Reading »

The long-term economic consequences of the government bail outs and stimulus packages are far from clear, and predications about what will happen to prices vary enormously.  Triple Point’s Michael Schwartz recently shared with the Journal of Compliance, Risk and Opportunity his thoughts on the New Risk Management Imperative. 

I particuraly enjoyed his thoughts on the 3 things one can be certain about:

1. High Levels of Volatility will Continue to Thrive. The Financial Times/Stock Exchange (FTSE) 100 Index over the recent three-month period shows a surge to 5,796 in April 2010 and a drop in June 2010 to 4,914. In 2008 alone, we saw three or four ‘100-year risk events,’ and will almost certainly see more such extreme events, that are simply outside of normal expectations.

2. Everyone is Taking Closer Look at Credit. Credit risk managers used to triage potential counterparties into three groups – definite yes, definite no and everyone in between. Now there is no chance that a potential counterparty will be automatically accepted – everyone is either rejected or sent for assessment. The profile of the credit department has risen and it isn’t going to sink any time soon.

3. Markets will be more Closely Regulated - The precise form of regulation is still being worked out, but there’s no denying the growing importance of accounting standards that require additional transparency in valuations and accounting methods such as International Accounting Standards (IAS) 39, Financial Accounting Standards (FAS) 133, FAS 157 and FAS 161.

Wherever the markets go in the next 12 months, firms with a real-time enterprise trading and risk platform that integrates the four key areas of risk – market/price risk; operational risk; regulatory risk; counterparty credit risk – will be best prepared to capitalize on today's world of increasing uncertainty.  Click here to read the full article in from the Journal of Compliance, Risk and Opportunity.

Events

Procemin 10th International Mineral Processing Conference

October 15-18, 2013 | Chile

XXV Brazilian National Meeting of Mineral Treatment and Extractive Metallurgy (ENTMME)

October 20-24, 2013 | Brazil



Opinions expressed on this blog are those of its individual contributors, and do not necessarily reflect the views of Triple Point Technology, Inc.